Here's my summary of the key events overnight that affect New Zealand, with news a full-blown banking crisis is brewing in Italy.
Firstly however, the final growth data for the giant American economy in the first quarter confirmed it slowed but not as sharply as previously estimated, with gains in exports and software investment partially offsetting weaker consumer spending. The final growth for Q1 is +1.1%, rather than the +0.8% pace reported last month. Their economy grew at a rate of +1.4% in the fourth quarter of 2015.
Consumer confidence in the US took an unexpected turn for the better in June in a survey out overnight. Perhaps strong house price gains helped.
And stocks are sharply higher on Wall Street today, with equity investors piling back in. The S&P500 is up almost +1.5% on the day with the later trades accelerating the trend.
Staying in the US, the final settlement between the various regulatory parties in the US and car maker Volkswagen is tougher than we reported it might be last week. In fact, the car maker may end up paying over NZ$20 bln to resolve its diesel deception. They have agreed to buy back cars if that is what the owners want. And they are being required to spend almost NZ$7 bln to develop "zero-emissions vehicle technology".
A major casualty of the Brexit shock may be the Italian banking system. Italy is preparing a €40 bln (NZ$63 bln) rescue of its financial system as bank shares have collapsed on the Milan stock exchange. An Italian government task force is watching the markets hour by hour, pledging all steps necessary to ensure stability of the banks. This is a big deal, but has its roots in 2008 because those earlier problems were papered over rather than being dealt with at the time. A collapse here is the sort of trigger the Europeans just don't need.
In New York, the benchmark UST 10yr yield has not fallen any further and is still at 1.46% in late trading. Locally, swap rates flattened at their low levels yesterday with the 1-5 curve now at just +7 bps and the 2-10 curve at +42 bps, both post-GFC lows.
Japan’s benchmark bonds are now all yielding less than 0.1% for the first time ever, pushed down by a global surge in sovereign debt prices following Brexit. The rally in Japan pushed yields on the nation’s longest debt, the 40-year bond, to just 0.065%. At the same time New Zealand's, Australia’s and South Korea’s 10-year yields all dropped to unprecedented levels. Our NZGB 2020s and 2021s may in fact soon yield less than 2%.
The US benchmark oil price is up today, now just under US$48/barrel and the Brent benchmark is just over US$48/barrel.
The gold price is down US$6 to US$1,314/oz. In a small spurt of futures trading yesterday, prices for WMP softened. We will get a better idea of this market with the next GlobalDairyTrade auction.
And finally, the NZ dollar starts a little firmer, now at 70.2 US¢, at 95.4 AU¢, and at 63.6 euro cents. The TWI-5 index is at 74.2. Incidentally, the Chinese have pushed their currency lower against the US dollar again in their overnight fixing.
If you want to catch up with all the local changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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